401 (k) vs. IRA

Planning for retirement often includes setting money aside in a 401(k) or IRA. But which is the right option for you? Here are a few things to know about each type of account:

401 (k)

• A retirement account offered by an employer to which you contribute a portion of your paycheck. Your money is invested in mutual funds, index funds, or target-date to help it grow. These available funds are chosen by your employer.
• Your employer may match a portion of your contribution, boosting your balance
• There’s a limit to how much you can contribute annually. In 2026, you can contribute up to $24,500 – or $32,500 if you’re 50 or older. If you add in your employer’s contribution, the limit is $72,000 (or as much as $83,250 based on age and catch-up contributions).
• You can begin withdrawing your money at age 59 ½ – or you can pay a fee to withdraw it early.
• With a traditional 401(k), contributions are made with pre-tax dollars. So, you will pay income taxes on the money when you withdraw it in retirement.
• With a less common Roth 401(k), contributions are made with after-tax dollars and therefore won’t be considered taxable income in retirement.

IRA

• Some employers offer IRAs, but most of the time an individual will open an IRA on their own at a bank or brokerage firm.
• Some employer-sponsored IRAs include employer contributions, but this is uncommon.
• You can contribute up to $7,500 annually (or $8,600 if you’re age 50 or older). This limit is a combined total for all of the IRAs held by one individual.
• You can choose how you want to invest your IRA funds – options include stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
• You can begin withdrawing your money at age 59 ½ – or you can pay a fee to withdraw it early. There are specific instances in which the fee is waived, such as using funds to for a first-time home purchase, higher education, medical costs, military service, and other specific financial hardships.
• With a traditional IRA, contributions are made with pre-tax dollars and investments grow tax deferred. So, you will pay income tax on the money when you withdraw it in retirement.
• With a Roth IRA, contributions are made with after-tax dollars and investments grow tax-free. So, you won’t pay income tax when you withdraw the money in retirement.

Planning for retirement is complex, and there are many things to consider when looking toward your financial future. City’s Wealth Management advisors are here to help you invest wisely and retire confidently.